Leading economic indicators suggest that the Republicans are headed into the fall mid-term election season with the wind at their backs.
Real GDP growth hit 4.1% during the second quarter. The unemployment rate recently slipped to 3.9%, and the US Federal Reserve is finally starting to meet its inflation targets.
Things are so good that U.S. president Donald Trump calls it “the greatest economy in the history of America.”
Yet while all appears well on the surface, there are growing concerns among gold investors about the sustainability of the current pick-up.
Works well in practice… but does it work in theory?
Part of the problem relates to the old joke about French university professors. “It works well in practice,” they reportedly ask. “But does it work in theory?”
The same question underlies Trump’s economic practices. They are clearly generating short-term results. But they don’t appear to adhere to any underlying philosophy.
Republicans liken Trump’s tax cuts and his deregulation efforts with policies implemented by the Reagan Administration. However, the comparison is far from perfect.
For one, the Trump Administration’s growing tariffs on imported goods, which amount to hidden sales taxes, are gradually undoing the effects of his earlier tax cuts.
Worse, the Trump Administration’s practice of choosing which sectors will benefit from protective tariffs and which won’t amounts to a drastic increase in government intervention in the economy.
Making government great again
Taking a step back, Trump’s policies incorporate many of the “big government” themes advocated by mainstream economists from both major political parties during much of the past four decades.
Led by Paul Krugman, a Nobel Prize winner, New York Times columnist and professor at CUNY, the economics profession has consistently advocated growth in government spending, borrowing and credit creation in the hopes of spurring economic growth.
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